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A Publication of WTVP

Aspiring entrepreneurs have more options today than ever.

If you want to own your own business, you are not alone. On average, more than 1,750 Americans a day catch entrepreneurial fever and start new businesses as a result. How do they do it? Many assume the best way is to start from the ground up. While that is certainly an option, it is not the only one. And it may not be the best one.
Let’s consider three hypothetical entrepreneurs: Tom, Dick and Harry. All three decide to open a bakery. Tom, a businessman who sees dollar signs whenever he eats one of his wife’s chocolate chip cookies, starts his bakery from scratch. Dick, who has worked at a bakery for 15 years, buys an existing shop from an owner who is retiring. And Harry, who has left the corporate world to live out his dream of being his own boss, opts for a national franchise.
The good news is all can be happy and successful in their choices—presuming they’ve made honest self-assessments of their strengths, goals and finances. When it comes to opening a business, there is no single solution that works for everyone.

What kind of business owner do you want to be?

Are you the brains behind an idea that needs to have your own personal stamp? Would you prefer to implement a proven business model? Or do you just have a passion for baking bread and need someone to show you the ropes? If you’re not sure which route to entrepreneurship is best for you, here is a quick look at three different options:

OPTION 1: BUYING A FRANCHISE

How it works: This is the right choice for Harry, our ex-corporate manager. For the cost of a franchise fee, he gets a ready-made business concept with an established record of success, plus a system for operating it. The upfront fees he’ll pay, along with ongoing royalties, give him the right to use the franchisor’s established name and branding. The franchisor may help him find a location for the business and provide training and ongoing support on marketing, management and other issues.

A good choice for: people with limited business, sales and marketing experience, or those who, like Harry, find the idea of a “business in a box” appealing. Successful franchisers are typically willing to follow an established business plan, rather than doing things “their way.” Franchises are also good options if you wish to reduce risk by associating with an established company. They are often the easiest type of business to get up and running quickly.

The downsides: Franchise fees and royalties can be substantial. Plus, the fees you pay do not guarantee that the franchise will be a success. Franchises are still businesses that must be managed, and the franchisor may not be able to assist you in all the areas in which you need help.

OPTION 2: BUYING AN EXISTING BUSINESS

How it works: If you’re like Dick and know what you are looking for, you can explore buying an existing business. Dick wanted to buy a bakery. To find one, he searched newspaper ads, the Internet and business brokers. But he didn’t just limit himself to shops already listed for sale. He did some research and found an owner who was beginning to think about retirement. With his attorney, accountant and banker’s blessing, he made an offer the owner couldn’t refuse.

A good choice for: persons who prefer to begin operating immediately in a “ready-made” business, without paying franchise fees or ongoing royalties. Entrepreneurs who purchase existing businesses are also buying a customer base, name recognition, current inventory and receivables—and can typically begin generating income the very first day in operation. They may also find it easier to obtain financing, presuming the business has a positive, established track record. Existing businesses with fixable problems may also be good options for persons skilled in business turnarounds. Plus, the previous owner may be willing to stay involved to help you learn the business and ease the transition.

The downsides: While often less costly than a franchise, existing businesses rarely come cheap. Also, they may have hidden problems that don’t become evident until after the sale is complete. In Dick’s case, he may find that the bakery’s air conditioning system is obsolete. Some receivables may be uncollectable. Employees may perform differently under his management style. In some cases, the “perfect” existing business may be hard to find. The type of company you seek is not always available in the location you want at the price you are willing to pay. The previous owner may have a hard time letting go, or customers may feel a loyalty to “the way things were,” requiring you to work hard to help them warm up to you.

OPTION 3: BUILDING A BUSINESS FROM SCRATCH

How it works: Like Tom, you may have an original idea and plenty of guts. Add in long hours, good business counsel, marketing and management acumen, and a detailed business plan, and it becomes possible to build your own version of the American Dream from the ground up.

A good choice for: people who are experienced and have a strong financial sense, along with a clear vision of what they want to do. Entrepreneurs like Tom who start their own cookie shop control everything: the business name, equipment, advertising, operating system—right down to the kitchen sink. They also avoid franchise fees and the “baggage” that may come with existing businesses.

The downsides: Because he does not have a track record of success, Tom runs the risk of incorrectly calculating what it will actually cost to open his doors and keep them open long enough to start turning a profit. As a result, he may also have more trouble obtaining outside financing. This can cause an early cash crunch, which can close a business before it’s even had a reasonable chance to succeed.

The bottom line: There may be a Tom, Dick or Harry inside you. To find out, take the time to consider your strengths and weaknesses, and explore your options for starting a small business. And good luck! iBi

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